Competition

The web search industry is characterized primarily by an oligopolistic competition within Google, Yahoo, Microsoft, and AOL. The Big 4 serve the entire market and share similar basic infrastructures and activities. So they compete in such segments as market share, technology and methods used, revenue, and share price.

High barriers to entry. Consolidated market with the high amount of R&D required.

Competition mainly on market share (differentiated product)

Google's website, Google.com had a 37% share of all U.S. searches in Q3 2005, Yahoo.com, its closest rival, had a 30% share.

Leveraging its own traffic and that of AOL, Ask.com, and other affiliates, Google garnered about 60% of U.S. search-related advertising revenue in 2005.

Outside the United States, Google.com held a commanding 68% share of all search traffic in Q3 2005.

In June 2000, one year after it was founded, Google's index of 1 billion web pages surpassed those of its rivals.

Revenue generating strategy ( Business Model)

Google's reveneue not only came from "coverage rate", "click-through rate", "average cost per click", and "revenue split"; But also from " contextual paid listing" and other new search domains such as "Froogle".

Exploiting "click-through" method maximized Google's revenue.

Leads that were generated by a search engine were more effective for marketers than banner ads on other websites because search engine users often were researching products and services that they planned to purchase soon.

70% of all e-commerce transactions originated through web search.

40% of all web searches had a commercial motivation.

Spending on paid listings grew rapidly (see Exhibit 4).

In 2002, Google launched Froogle, a product search service that identified merchants for specific products, along with their prices

To encourage rapid execution and increase productivity, Google engineers typically worked in teams of only three to five people.

Governance Structure

Dual-class equity structure, which will dilute investors' influence over the company's direction and will allow Google to concentrate on its core, long-term interest, despite fluctuations in quarterly results.

The top management trio would own, in aggregate, roughly one-third of Google's shares but would control over 80% of shareholder votes.

In response to reservation's from investors about Google's unusual reliance on a top management trio, Page-cofounder- acknowledged that to facilitate timely decisions, the top management meet daily, decisions are often made by one of them with others being briefed later, and for important decisions they discuss the issue with the larger team.

II. Competitor Analysis

III. Analysis of the Focal Firm

IV. Analysis of the Focal Firm in its Environment

Cause Map

Ã¯Â¿Â½

VI. Problem Definition

VII. Strategy

VIII. Strategy Evaluation

IX. Appendices

Exhibit 1 Google Financials, 1999-2005 ($ in millions)

1999

2000

2001

2002

2003

2004

2005

Revenue:

$0.20

$19.10

$86.40

$439.50

$1,465.90

$3,189.20

$6,138.60

- ad revenue

*Google sites

N/A

N/A

66

307

792.1

1589

3377

*Network sites

N/A

N/A

_

103.9

628.6

1554.3

2688

- Licensing and other

N/A

N/A

19.5

28.6

45.3

45.9

73.6

Traffic acquisition cost (for network sites)

_

_

_

$94.50

$525.60

$1,228.70

$2,115.00

Cost of net revenue (for data centers, bandwidth,etc.)

0.9

6.1

14.2

37

99.3

229

456.5

R&D

2.9

10.5

16.5

31.7

91.2

225.6

484

Sales and marketing

1.7

10.4

20.1

43.8

120.3

246.3

439.7

G&A

1.2

4.4

12.3

24.3

56.7

139.7

335.3

Stock-based compensation

_

2.5

12.4

21.6

229.4

278.7

200.7

Yahoo patent litigation settlement

_

_

_

_

_

201

_

Contribution to Google Foundation

_

_

_

_

_

_

90

TOTAL EXPENSES

$6.70

$33.90

$75.50

$252.90

$1,122.50

$2,549.00

$4,121.20

Income(loss) from operations

($6.50)

($14.80)

$10.90

$186.60

$343.40

$640.20

$2,017.40

Net Income

($6.10)

($14.70)

$7.00

$99.70

$105.60

$399.10

$1,465.40

Cash and marketable securities, year-end

$20.00

$19.10

$33.60

$146.30

$334.70

$2,132.20

$8,034.30

Purchases of property and equipment

N/A

N/A

13.1

37.2

176.8

319

838.2

Depreciation and amortization of property and equipment

N/A

N/A

9.8

17.8

43.9

128.5

256.8

Acquisitions, net of cash acquired

N/A

N/A

_

_

40

22

86.5

Revenue by Geography

- United States

N/A

N/A

$74.00

$275.30

$707.90

$2,127.10

$3,744.50

- International

N/A

N/A

12.4

72.5

254

1,062.20

2,394.00

Source: Google S1 and 2005 10K statement

Exhibit 2 U.S. and International Search Engine Market Share

* "Others" include AOL and Ask.com, which had 8.7% and 6.5% shares in November 2005, respectively.

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